Canada Confirms Carbon Rebates for Small Businesses Will Be Tax-Free
Final carbon rebate payments to over 600,000 businesses will be tax-free, as Ottawa ends the federal fuel charge and streamlines carbon pricing for large emitters.
The Government of Canada has confirmed that all Canada Carbon Rebates for Small Businesses will be non-taxable. The announcement, made on June 30, 2025, by the François-Philippe Champagne, Minister of Finance and National Revenue, ensures that businesses will receive the full financial benefit of these rebates without any tax deductions.
Draft Legislation Issued to Secure Tax-Free Status
The government has released draft legislation to exempt the rebates from income tax, covering payments related to the 2019-20 through 2024-25 fuel charge years. This includes both previously issued and upcoming payments under the program. Final legislation will be introduced in Parliament this fall.
Once passed, the Canada Revenue Agency (CRA) will be authorized to process amended T2 corporation tax returns for businesses that had previously included the rebates as taxable income. Further CRA guidance will be issued after Royal Assent.
Retroactive and Final Payments Also to Be Tax-Free
Eligible businesses that file their 2023 income tax returns between July 15 and December 31, 2024, will qualify for tax-free rebates for the 2019-20 to 2023-24 fuel charge years. Similarly, those filing their 2024 returns by July 15, 2025, will receive a final, tax-free payment for the 2024-25 fuel charge year.
The 2024-25 payment will be the last under this rebate program, following the government’s decision to abolish the federal consumer fuel charge effective April 1, 2025.
Expansion Plans Scrapped
Alongside this confirmation, the government also announced that it will not move forward with previously proposed expansions from the 2024 Fall Economic Statement. These scrapped changes included extending eligibility to cooperatives and credit unions, introducing minimum payments for smaller firms, and implementing a phaseout for larger businesses.
Statement from the Finance Minister
“With the elimination of the federal fuel charge, we will be making our final Canada Carbon Rebate for Small Businesses payments, and as with those for previous years, they will be tax-free,” said Minister Champagne. “This approach enables us to maintain a fair and effective carbon pricing system focused on large emitters while providing financial relief to small businesses.”
Background and Quick Facts
The consumer fuel charge was removed on April 1, 2025. Over $2.5 billion in tax-free payments are being issued to more than 600,000 Canadian businesses. The government will return $623.1 million in proceeds from the 2024-25 fuel charge year, with payment rates to be specified later in 2025.
With this announcement, the federal government reaffirms its commitment to cutting costs, simplifying compliance, and delivering targeted climate incentives as part of its broader strategy for a greener and more competitive economy.
Mariya is the Senior Editor at JurisHour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.
